Economics of Pune Metro

Pune Metro project is by far the most expensive urban transport infrastructure development proposed in the history of Pune. In 2009 the estimated cost of the Project was INR 7,984 core (inclusive of central taxes). In August 2014 the estimates were revised and a 45% cost escalation raised the total project expense to be INR 10,869 crores. The recent estimates revised in November 2015 state INR 11,522 crores including all central taxes. Time is crucial to implmentation of large-scale infrastructure projects such as Metro. Any delays hamper the fund raising prospects of the project ren

The cost escalations have to be read carefully. The proposal estimates are based on the ‘civil, electrical, signalling and telecommunications works, rolling stock, etc.’ ‘Environmental protection works, additional compensatory measures, compensation for loss of trees, compensatory afforestation and fencing, monitoring of water quality, air/noise pollution during construction, establishment of Environmental Division’ are also estimated for. However, these have not been scrutinized by experts and needs further investigation. Some compensation for rehabilitation and ‘sufficient’ provision for shifting of structures is also included in the proposal yet again these estimates are not verified by external experts from the field.

In reality the PMC would have to make additional budget provisions for allied urban infrastructure to ensure Metro functioning at its optimum capacity. The inconvenience cost due to Metro construction is not computed as yet. The experiences from other cities show that there are several unforeseen out-of-pocket expenditures particularly during the pre-construction and construction phase (Ramachandraiah, 2010).

In general, Metro projects are characterised by heavy capital investments coupled with long gestation period leading to low financial rates of return. Thus it needs multiple funding support from State and Central governments, foreign loans, tax exemptions and other subsidies. A letter by Ministry of Urban Development[1], Government of India states“essential pre-requisites” to the State and Cities availing Central Financial Assistance for Metro. It states that the Government should :-

encash the increased property value (sale/rental) in the catchment area of MRTS corridor as well as the increased FAR along the Metro Corridor which can be used to not only part fund the project cost but also for providing interest subsidy to make available the loans, to the SPV implementing the project, on a very concessional rate so as to maintain its debt service coverage ratio (DSCR) of more than 1.15 each year.[1]

This implies that Metro being a public sector mode of transport cannot purely depend on the fare hikes as its source of income. To optimize from the land development along the metro corridor it will be necessary to levy series of cess and taxes on residential and commercial properties, including additional property taxes, fuel tax, cess on sale of land, vacant land charges, parking tax etc. Penalty to all developers including government bodies to prevent inefficient use of valuable land is also proposed. A study shows that such rules intensify gentrification in MIZ by converting the low-rent spaces into high-rent spaces (Randhawa, 2012). The rental advantage for commercial properties extends much beyond the MIZ whereas the residential properties are at an advantage closer to the Metro line.

In this context, Page 443 of the November 2015 DPR for Pune Metro is worth looking at:-

Land Para Metro

In the above paragraph the DPR explains that the proposed Metro route passes through a densely developed area which it refers to as ‘old and dilapidated city areas’, primarily the core city. This area is infact the historic urban landscape of Pune, the Peths. It further suggests that the only way to transform this area radically is by proposing 4 FSI that will trigger densification and “urban renewal”.  This also implies demolition of heritage structures and an irreversible transformation of historic landscape. Literature on socio-economic impact of Metro indicates that the Metro leads to gradual displacement of the original residents of the area, including the traditional populations and also the displacement of large traditional occupations out of the MIZ (Ghadge, 2013). It is worth mentioning here that the impact in MIZ is irrespective of whether the Metro is elevated or underground.

An analysis done by Janwani[2] of the nature of income expected to be generated by PMC with the tradable 4 FSI in MIZ shows a whooping figure of approximately INR 37,000 crores based on the details mentioned in DPR of 2013. This is far in excess to the Metro construction cost that is given in the said DPR as Rs 10,869 (at the time of the study).

Thus we see that the economics of proposed Pune Metro is not merely the engineering costs proposed within the DPR but large unforeseen expenditure and the price that the city will have to pay with regards to the loss of heritage value.


 

 

[1] Letter No.K-14011/8/2012-MRTS(Coord) dated 16th April 2012, Government of India, Ministry of Urban Development, http://www.urbanindia.nic.in

 

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